July 6, 2012
Fact:
A substantial amount of trade deficit of India is due to
excessive import of Gold. According to the
data available, the annual import of gold in 2011-12 is supposed
to have crossed 900 tonnes.
Observation:
1. The government is upset that in spite of imposing duty on
gold, people continue to buy gold.
Demand for gold is inelastic.
2. It takes away the financial savings. Instead of savings is
used for investment in the creation
of other assets, it gets locked up in an unproductive asset.
3. People believe that gold is a better hedge against inflation.
The interest on the various
savings deposits, currently yield returns, which also is
taxable, is much lower than the actual
inflation rate.
4. Gold is real money and can be converted into cash anytime. It
has value all around the
world.
5. Also, Indians think that having gold with them gives a
psychological boost.
6. Unlike other financial products, Gold makes people
emotionally secure.
7. If the government wants money to be routed to production
sector they must control inflation
first.
Fact:
Government borrowings may come down this year says the Indian
department of economic
affair.
Observation:
1. Mr. Pranab Mukherjee said the government borrowing will be at
4.79 lac crore (4.79 trillion
rupees) for the financial year 2012-13. In addition with cash
management requirement at
90000 crores, the total borrowing is expected to be 5.69
crore.
2. This is based upon the assumption of the GDP growth rate to
stay at 7.6 percent, WPI at
6.5%
3. Industrial slowdown is underway. Monsoon is way below par.
Service sector is growing
rather slowly. Foreign agencies are predicting an Indian growth
rate for FY 2012-13 not
exceeding 5.8 percent.
